Stablecoins 101: All You Need to Know About USDT And Others

Stablecoins are cryptocurrencies which have their prices rigidly tied to that of another asset, in most cases of some fiat currency. Such tokens aim to provide financial instruments that have all the advantages of crypto but still protected from high volatility associated with the entire crypto market. Stablecoins are more suitable as a store of value than traditional cryptocurrencies, and they seem to be better as means of payment as well. In this article, we’re going to compare some of the most well-known stablecoins to understand who’s going to win in the UST vs USDT vs USDC competition.

What are stablecoins secured by

The most widely used stablecoins are backed by fiat currencies. That means you can exchange them 1:1, and the price of the token strictly follows the price of its underlying currency. The most popular coin of this kind is Tether which is tied to the US dollar. However, there are stablecoins backed by other cryptocurrencies. These coins use smart contracts to exchange stablecoins for their basic tokens and back. There are also algorithmic stablecoins that aren’t based on prices directly — instead, they use special smart contract to regulate the overall supply and thus keep the price stable.

Popular stablecoins

The stablecoin market exploded in 2020, and now there are literally dozens of them out there. However, only a few have a substantial market cap. Let’s take a brief look at the most popular of them.

USDT

With a market cap of about $68 billion, Tether (USDT) is the third most popular cryptocurrency in the world. It is designed to serve as a digital dollar substitute, and it can be exchanged for USD in the 1:1 ratio. The coin is backed by real USD reserves, and it’s used by millions of people every day.

USDC

USDC is the fifth most popular cryptocurrency. Its market cap is about $47 billion. The token is also backed by USD in the 1:1 ratio, but it’s considered more transparent than USDT while having less liquidity.

BUSD

BUSD is another USD-based stablecoin created by Binance. With a market cap of $21 billion, it’s the seventh most used cryptocurrency. It’s supported by the reputation of Binance and NYDFS, a serious American regulator. What makes this coin different from USDT is the fact that it’s backed by US banks, so if you’re a US citizen, it’s best for you.

DAI

DAI is the 13th crypto by market cap, almost reaching $7 billion. DAI is not backed by fiat currencies — instead, it relies on ETH and USDC. DAI is managed by its own DAO, so it’s the best option for true crypto enthusiasts.

USDD

USDD is another coin that’s 1:1 pegged to the US dollar and based on the TRON blockchain. It’s also algorithmic: price stability is achieved via smart contracts. Its market cap is $800 million. However, it stands out of the crowd by having a relatively high APY of 30%.

Conclusions

USD-based stablecoins are very similar, so if you need them as a substitute for real dollars, just choose any token. But if you’re planning on investing in them or staking, make sure to read the related documentation first and learn how they actually work.